Side Letter: KKR’s alignment, LPs’ climate demands, a rare GP stakes exit

KKR moves to create better alignment, and we look at how institutional investors are addressing the risks and opportunities associated with climate change. Plus: Rosemont Investment has completed a rare GP stakes exit. Here's today's brief, for our valued subscribers only.

They said it

“Diverse founders have been disenfranchised for a long time, so today, we have to make an effort to attract them. It would require investors to work in the field more, but that’s the only right way to get those diverse founders they claim to be looking for in the pipeline.”

Sergio Paluch, managing partner at Beta Boom, a US pre-seed investor targeting start-ups with diverse founders, tells Venture Capital Journal (registration or subscription required) that firms must be proactive in seeking diverse entrepreneurs.

Just happened

KKR’s comp tweak
KKR has tweaked its compensation to become more success-based, according to its Q4 earnings statement on Tuesday. Employee compensation will be linked to fee revenues and the realised investment performance of its funds, rather than a single number based on all forms of revenue. The change is largely based on a positive outlook for the firm marked by the growth of its management business, its fundraising pipeline and its Global Atlantic acquisition, which is expected to add a significant stream of management fees. “We feel that we’ve never had better line of sight, better visibility into our management fees as we do right now,” CFO Rob Lewin said on a call with analysts, adding that the move will create better alignment and will benefit shareholders and LPs.

The climate question
This week we’ve been sharing highlights with readers from our latest Responsible Investment Special. This piece explores how institutional investors are addressing the risks and opportunities associated with climate change, and how GPs need to respond. The key takeaway: managers should prepare for questions relating to greenhouse gas emissions (reductions or target setting), fossil fuel exposure and disclosures in line with the Task Force on Climate-related Financial Disclosures recommendations.

Also under the microscope today in PEI‘s 30 Big Ideas Shaping ESG: Social responsibility and environment. We profile a Northern European GP with a forward-looking strategy that ensures its companies remain sustainable after the GP has exited, and a secondaries giant using scientists to assess physical and transition-related climate risk in all active funds.

Active investors
Wondering which LPs were most active in PE last year? Which geographies are hot, and which are not? Look no further than PEI‘s 2020 Investor Report, which is available to download. On average, PE constituted 8.7 percent of an LP’s investment portfolio in 2020. Foundations and endowments have ramped up their allocations in recent years, while insurers and private pensions took a moderate step back last year. You can download the presentation here and the data from this investor report here.


Rosemont’s exit
Rosemont Investment Group, a pioneer of GP stakes funds, has sold its minority position in public equities firm Boston Common Asset Management to Affiliated Managers Group and Boston employees, per a statement. Critics of GP stakes funds have cited a lack of predictable exits as a reason for not committing to the strategy. Dyal Capital Partners, one of the sector’s biggest names, was mulling a strip sale of stakes last year to help LPs cash out (registration or subscription required).

McGlashan to plead guilty
In case you missed it, Bill McGlashan, founder of TPG’s impact vehicle the Rise Fund, has agreed to plead guilty to participating in the 2019 college admissions scandal. According to a plea agreement filed in a Boston federal court last Friday, the former face of impact investing agreed to plead guilty to one count of aiding and abetting wire fraud and honest services wire fraud (three of the four counts were dismissed). He faces a three-month sentence, and a $250,000 fine, among other recommendations by prosecutors. McGlashan was among 33 parents indicted two years ago over their alleged participation in a US college entrance exam cheating scheme as well as a college recruitment scheme. He will formally enter his plea by 15 February.

Temasek’s transition
Ho Ching, chief executive of Singaporean state investor Temasek Holdings, will retire in October, per a statement. Dilhan Pillay Sandrasegara, chief executive of the institution’s commercial arm, Temasek International, will succeed her while retaining his present role. Temasek is one of Asia’s biggest supporters of private equity and its overall portfolio has grown from about S$90 billion ($68 billion; €56 billion) at the time of Ching’s appointment in 2004 to more than S$300 billion today, of which about 4 percent is allocated to PE.

Dig deeper

Institution: City of Philadelphia Board of Pensions & Retirement
Headquarters: Philadelphia, United States
AUM: $6.4 billion
Allocation to alternatives: 11.2%

City of Philadelphia Board of Pensions & Retirement has confirmed $100 million in commitments to two private equity funds, according to minutes from its December investment committee meeting.

Philadelphia will commit $25 million to both African Development Partners Fund III and ADP III Co-investment Vehicle. A further commitment of $50 million will be made to Queen Lane Fund.

The African Development Partners Fund III is managed by Development Partners International and will invest in companies in the TMT, retail and manufacturing sector in Pan-African countries. Queen Lane Fund is managed by Franklin Park and is a social impact fund.

The $6.4 billion US public pension fund has a 9.6 percent allocation to private equity and has made $195 million in commitments to funds with vintage years of 2018-20.

For more information on City of Philadelphia, as well as more than 5,900 other institutions, check out the PEI database.

Today’s letter was prepared by Alex Lynn with Adam Le.

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